High-income earners to pay more

China Daily, April 19, 2011

The government will generate more revenue by strengthening taxation management on high-income earners and covering loopholes in the existing system, the State Administration of Taxation announced Sunday.

High-income earning expatriates working in China, middle and senior management staff involved in industries such as real estate, securities and private-equity funds, as well as film and music industry professionals and celebrities who generate income from advertisements and performances, are all on the key list of tax collection tightening practices, according to the taxation authority.

The announcement came as China's Standing Committee of the National People's Congress prepares for official meetings later this week to review the draft amendment on the personal income tax law.

With inflation at stubbornly high levels, expectations are that the starting level to be taxed on personal income may be raised from 2,000 yuan ($306) to 3,000 yuan per month.

"Enhancing taxation supervision on high-income earners and raising the cut-off point are actually two sides of a coin, which all aim to realize fair taxation," said Liu Tianyong, a partner at Beijing-based Hwuason Law Firm, which specializes in taxation law. Liu is also a guest professor at Beijing's Central University of Finance and Economics' school of taxation.

Liu said supervising the personal income data of all residents, which involve huge numbers of people that are scattered across a vast geographic area, may prove difficult for tax authorities.

"And our current income taxation system is in need of (a broader range) of different tax rates," he said.

He cited as an example that the current guidelines impose the same tax rates on a person that makes 8,000 yuan in monthly income as they do a resident that makes 20,000 yuan per month.

The Ministry of Finance announced back in February that China's total tax revenue grew by 23 percent over 2009 figures to 7.32 trillion yuan ($1.17 trillion). While personal income tax revenue rose by 22.5 percent to 483.7 billion yuan, accounting for 6.6 percent of total tax revenues.

According to the 2009 "tax misery index" released by Forbes magazine, China ranked second in "imposing the harshest taxes," right behind France. But when it comes to corresponding social benefits, China still has a long way to go, compared to the West.